About this Author

College chemistry, 1983

The 2002 Model

After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases.
To contact Derek email him directly: derekb.lowe@gmail.com
Twitter: Dereklowe

August 13, 2013

Sanofi in China

Posted by Derek

Now Sanofi is tangled up in trouble in China. The last few days have brought news of a wide-ranging investigation into payments to hospitals and medical workers, similar to what GlaxoSmithKline has been accused of.

And I don't have much reason to doubt either story, because (as this BBC story details) payments of this sort are rife. I would also note that, according to the AP, the Chinese government "is investigating production costs at 60 Chinese and foreign pharmaceutical manufacturers, according to state media, possible as a prelude to revising state-imposed price caps on key medications."

A system where everyone is in violation of the law has a lot of advantages - if you're the government. Retribution, when it's needed, is always at hand, because all you have to do is threaten to enforce what's already on the books. And lest someone think that I'm just beating away at the Chinese situation, the same applies to the US (on what I hope is a lower level). Here's economist Tyler Cowen, from the Marginal Revolution blog, on that very subject:

Faced with the evidence of an non-intentional crime, most prosecutors, of course, would use their discretion and not threaten imprisonment. Evidence and discretion, however, are precisely the point. Today, no one is innocent and thus our freedom is maintained only by the high cost of evidence and the prosecutor’s discretion.

The GSK and Sanofi allegations are, of course, all about intentional acts. But prosecuting them is very much up to the discretion of the Chinese authorities. If they're trying to root out corruption in their health care system, more power to them, because that's a worthy cause. But if they're just putting the squeeze on people long enough to bargain with them, only to let things return to the status quo ante after concessions have been extracted, then I have another opinion. Cynically, that's just what I expect to happen. After all, one might need to charge these companies with bribery again at some point. The Chinese authorities - authorities in general, all over the world - are not in the habit of putting down useful weapons and walking away from them.

They all are breaking bad! Big pharmaceutical companies knew all along that they can work through in China simply by bribing the communist apparatchik at all levels! That is the only way the communists operate and reach the top echelons of power! So they were all willing to be bribed and now the thug and slimy Chinese officials are claiming they are being bribed?

These companies put themselves in this boat. Unfortunately that just means the costs of R&D+profit margin will be made up here in the US as China/India/Europe are able to barter on pricing.

What will likely be done in China is present companies with a couple of options

1. Compulsory Licencing: China will legally allow their domestics to produce the drug and turn a profit
2. Blind eye Licensing: China will allow their domestics to produce the drug and choose not to prosecute them (let them steal it)
3. China will exchange reduced prosecution related to current events for lower drug pricing.

They are essentially stocking up on blackmail options.
What ever the case, the Chinese economy stands to benefit. Suddenly "access" to this large market doesn't seem so lucrative when your margins per drug sold fall out.
China will likely try to keep this dance going as long as possible (if big pharma pulls out now, it will be harder for them to get their hands on "western" medications 10 years from now).
The example I think of is from the movie E.T. when a genius martian is lured by simple candy pieces.

With these things it's never clear to me who's wrongdoing I should be concerned about. There's a big moral difference between paying somebody off to look the other way, and paying somebody off to get them to do their effing job or to let you do yours. In the former case the crime is bribery, but in the latter case the crime is really extortion, and coming down on the briber is just blaming the victim.

Either every pharma company and its many people are truly bad and that's why we see repeated allegations and settlements or the laws are so compex and subject to interpretation that any given company could be taken on at some point and for some thing and simply cannot afford the grief and uncertainty inherent with fighting back. More likely a combination of both. I am skeptical of all these huge financial settlements in the US with no criminal prosecitions. The bar to proving criminal behavior is very real and people will definitely fight back, forcing the government to prove its case before jury. They seem to prefer taking the easy money and running. Somewhat akin to the criminal forfeiture laws where we see the government confiscating property and then not bringing a criminal case at all or even losing the criminal case. Guess what, they most often still keep the property - how cool is that!

Is the Chinese government cracking down on the bribe takers as much as the bribe makers?

The stories linked cite specific numbers of hospitals and doctors which would seem to indicate they know who was offered and accepted these bribes, yet the stories seem to be centered on the bribers, not the bribees.

If they were concerned about integrity and government function, the bribeable functionaries should be the primary targets - they were violating their duties to their country and their employers. However, it may also be possible that they don't want to make the corruption in government an issue of discussion - it's easier to blame the crooked foreigners for corruption than your countrymen/women who sold you out, and it is an easier story for those in power to deal with. They might deal with their own crooks in private, so that their corruption isn't seen at all rather than being seen as a failure of the government.

It might still be a shakedown of (foreign) pharma, but it might also be that the government is trying to spin the corruption in a way that doesn't hurt their image.

@9 Hap
Going with your point, I'd also note commentary* around the Shanghai/GSK revelations, suggesting the highly public accusations of non-native Pharmas are, in part, seeking to deflect blame for shortcomings in extending more equitable healthcare throughout China.